Inflation Deflated? Evaluating the ‘Alibaba Index’

How high is inflation in China? Some suspect it is higher than is captured in the official consumer price index.

A new measure developed by e-commerce giant Alibaba Group Holding Ltd. seems to give that idea some credibility. The official CPI puts inflation at 2.4% year-on-year in April. Alibaba’s Internet Shopping Price Index – based on transactions on the firm’s Taobao and Tmall websites – puts it at 6.9%.

After an article in The Wall Street Journal drew attention to the discrepancy, China’s National Bureau of Statistics went into action. They pored over the description of the Alibaba index (in Chinese), and dispatched researchers to Hangzhou to interview its creators.

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They came back with two key conclusions.

First, the Alibaba index has a different scope to the CPI, reflecting the different type of goods purchased on the Internet. Food and accommodation make up about 50% of the CPI basket, the NBS notes, while in the Alibaba index they account for only 6%. The type of food in the Alibaba index is typically packaged goods, where the CPI includes fresh meat and produce. Services like health and education are an important part of the CPI, but not the Alibaba index.

Second, where the CPI takes careful account of changes in quality, the Alibaba index doesn’t. That means if there’s a drift from cheap Li Ning trainers to expensive Nike running shoes sold on Taobao and Tmall, that would show up as inflation, when in fact it wasn’t prices that had changed but the quality of goods.

An Alibaba Group spokesperson said that was an issue, saying that a rapid upgrade in the quality of goods sold online was difficult to control for in the index. Alibaba’s spokesperson also said that different seasonal patterns of spending online, as well as promotions and sales, accounted for some of the fluctuation of the firm’s Index.

The conclusion from the National Bureau of Statistics: “The differences in coverage and methodology in the CPI and the Alibaba Index means that differences in the results are inevitable and normal.”

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